THE NEWSLETTER OF THE UC AGRICULTURAL ISSUES CENTER

VOLUME 11. NO. 4. 1997

DIRECTOR’S MESSAGEBY DANIEL A. SUMNER

This fall I spent one month in China and one week in South Korea, an interesting and productive trip to a part of the world that is particularly important to California agriculture. I had visited a number of Asian countries and South Korea several times, but it was my first visit to China.

Agriculture in China has enormous variety. Chinese agriculture is dominated by tiny family farms—a typical one might be about one acre, producing mainly grain—but it also has some huge state farms. I visited a state farm corporation outside Beijing that cultivates about 2,000 acres of wheat, milks about 10,000 cows, and raises and fattens 100,000 ducks (for Peking Duck). That farm also has a sizable hog operation, some miscellaneous crops and operates joint ventures with a Spanish multinational to produce value-added dairy products, such as flavored yogurt drinks. Outside of agriculture, the corporation owns a taxi company and a large apartment complex.

As with other state-owned enterprises in China, this company is under pressure to reduce costs, trim its bloated work force and generally get the business on sound financial footing. Clearly, growing incomes, improving infrastructure and broadening development are changing the physical and economic face of agriculture and the entire country.

Our visit to South Korea was in early November, a few weeks before the collapse of financial markets in Asia. Even at that time, the South Korean won had lost about 20 percent of its value over the previous year and there had been some increase in bankruptcies and bank failures—but the general mood within agriculture and agribusiness was one of optimism.

South Koreans are rightly proud of the economic and political transformation they have achieved in just 30 years. Traveling from Beijing to Seoul dramatizes that transformation, and also makes obvious how far the South Korean economy and its agriculture has come. Based on the achievement of recent decades, it seemed that South Korea’s financial problems were real, but short-term, and could be overcome with sound economic policy and some luck. Unfortunately, neither luck nor sound policy was available in late November and early December. The won dropped another 60 percent before recovering somewhat. This made it impossible to meet dollar-denominated debt payments. Even with improvement at the end of 1997, the situation remains serious and unsettled.

South Korea has been a major growing market for many agricultural products from California, so its prospects have clear and immediate economic implications here. It has also been opening its markets further in response to the Uruguay Round Trade Agreement and World Trade Organization dispute settlement pressures. However, the current economic turmoil means slower income growth and an expensive dollar relative to the won. Neither of these is good for California farm exports.

Everyone I spoke with agrees that the fundamental prospects for long-term growth in South Korea are strong, as they are in China. California agriculture must maintain an active interest in the region and encourage policy reforms that get economic growth back on track. In the 21st Century, both China and Korea will be even more important to California agriculture than they are today.

GROWER SURVEY ON RICE STRAW DISPOSAL

The AIC is co-sponsoring a study on growers’ responses to the state-mandated phasedown of rice straw burning in the Sacramento Valley. Data for the research is currently being collected through a mail and interview survey of randomly selected growers in a nine-county region.

The questionnaire, titled “Economics of Rice Straw Disposal: Grower Experiences 1995-1997,” queries growers about their costs of rice straw disposal, the physical characteristics of their rice fields, and their experience trading burning rights with other growers in the Valley. As is standard with this sort of statistical research, confidentiality of individual responses will be maintained.

The objective of the research is to determine the magnitude of costs that the burn phasedown imposes upon the rice industry, and to analyze the ways in which growers are responding. UC Davis graduate student Marc Carey, Professor Richard Howitt of the Department of Agricultural and Resource Economics, UC Davis, and AIC Director Daniel Sumner are collaborating on the research.

The results of this study will be featured in a forthcoming AIC Issues Brief, as well as in more technical research reports.

EXOTIC PEST PROJECT LAUNCHED

Exotic pests—harmful non-indigenous species—are the focus of the next major study by the AIC.

Daniel Sumner, Jerry Siebert, Marcia Kreith and Hyunok Lee have been working with the California Department of Food and Agriculture and others to plan a thorough multi-disciplinary study of exotic pest issues in California. After additional planning with scientists and policy analysts from the University of California, state and federal governments, industry and public organizations, we will begin to tackle a broad set of public issues that arise from the exotic pest threat.

The project will help decision makers better understand the effects of exotic pests on plant and animal production and mechanisms for detection, exclusion, eradication or control. We will study the public interest in exotic pest policy and review the full costs of public action or inaction. We will carefully consider the impact of potential exotic pest problems on domestic and international markets for California agricultural products. Consequences of alternative monitoring, eradication and control programs will be modeled and measured.

Exotic pests include a variety of plants, animals and microbes—such as weeds, disease-causing pathogens, insects, nematodes, vertebrates, etc. Several exotic pest related plant and animal diseases, insects, weeds, and nematodes are important in California. These include well known pests such as medfly, foot-and-mouth disease, citrus canker and hydrilla.

Early in 1998 we expect to begin working with research collaborators and project advisors from throughout the University research and extension community, the agricultural industry, and the public interest.

HAROLD O. CARTER ENDOWMENT UPDATE

BY WILLIAM ALLEWELT
AIC ADVISORY BOARD CHAIR

It’s gratifying to report that we’re off to a great start with fund raising for the Harold O. Carter Endowment of the UC Agricultural Issues Center. We will have lead gifts totaling more than $200,000 on the books before the official campaign commences early in 1998.

The campaign is a volunteer effort. All members of the AIC Advisory Board are enlisted and have been joined by a few other well known and respected participants in the agricultural community. It will also be of short duration; we intend to wind up our calls by the end of 1998. Of course, the endowment will remain open for future gifts from later donors who support the Center’s work.

Participants will not be subjected to a hard sell. We are committed to support being decided on the merits of what donors believe the Center has been worth over these past dozen start-up years, and what value it promises for the future.

The UC Agricultural Issues Center is a truly unique undertaking, chartered as it is to provide objective, scholarly examination of critical agricultural issues that also affect much broader public interests. In this sense we see it as a vital academic resource to promote agricultural literacy—a companion to such public information programs as Ag in the Classroom and Ag Network.

Those of us involved with this campaign believe the Center’s performance has earned your generous support for this special campaign. We’ll be anxious to hear if you agree when we contact you in 1998.

AIC PROGRAM ON RESOURCES AND ENVIRONMENT

BY KEITH C. KNAPP

Natural resources and the environment are under stress in California and the West. Increases in population and economic growth, and continuing concern over the environment combine to place resources at the forefront of of AIC issues.

California agriculture is both affected by and a source of change in natural resource systems. The AIC program in Resources and the Environment focuses on these interactions between agriculture and the ecosystem.

As the primary water user in California, irrigated agriculture can expect increasing competition for water supplies from urban and environmental uses. Agriculture also contributes to water quality degradation through sedimentation, salinity, nitrates and other toxics such as selenium and pesticides. Innovative water management strategies are ways to mitigate both of these problems. Some of my ongoing research is investigating the economics of these issues.

Groundwater can expect increasing attention in the future. The Center has published several studies on water transfers. Related to this work we will now investigate in more detail the impacts of proposed water transfers and water markets on groundwater usage and management. Recent research results are being summarized in a forthcoming AIC Issues Brief, and a more detailed study for the southern San Joaquin Valley has been initiated. In general the long-run sustainability of groundwater resources (both quantity and quality) is the subject of considerable concern in California. This topic will be investigated as a possibility for a future major Center study.

Air quality is another area of significant concern to agriculture. Public attention and regulation has highlighted rice straw burning, particulate matter and animal waste odor as sources of particular concern. AIC has completed studies related to livestock waste (which is also a water quality issue) and has work underway on the rice straw issue.

A major AIC research project (page 3) will deal with the analysis of issues related to exotic pest control. A part of this issue is the effect of control and eradication measures on environmental quality and on perceptions of California residents. AIC will deal with these environmental concerns in the overall project on exotic pest issues.

As you can tell, we have a full agenda for the Resources and Environment Program at AIC. There are many vital concerns facing California. We cannot deal with all of them, but we can contribute information and/or analysis to some of the most important issues.

WHERE IN THE WORLD ARE THE MARKETS?

A lunch address and question and answer session with California Secretary of Agriculture Ann Veneman highlighted the annual UC Executive Seminar on Agricultural Issues held at the Sacramento Hyatt on December 11, 1997.

One hundred and thirty-six agribusiness representatives, academic researchers and agency personnel shared their expertise on the topic: Where in the World Are the Markets? After a brief welcome by AIC Director Daniel Sumner, Jerry Siebert, AIC Associate Director and conference co-chair, characterized California agriculture and described trends and issues facing the industry. He pointed out that world incomes and population are expected to grow, and markets are opening further. These global forces create challenges and opportunities for California’s dynamic agricultural industries. Following Siebert’s overview, panels of industry leaders discussed those issues in three broadly defined markets.

Secretary Veneman described how the globalization of food systems profoundly influences California agriculture. Calling attention to the interconnections between international relations and agriculture, she also noted the importance of food safety and the public perception of food safety. Veneman cautioned against erecting import barriers to protect California agriculture, because we ultimately gain much more from open markets worldwide.

ASIA. The Orient is an important and growing market for California despite the current financial crisis (see Director Sumner’s message). Japan, South Korea and Hong Kong are among the top six destinations for California agricultural exports, while China and India are expected to become especially important in coming years. (Forecasts for 2020 are that China will be the world’s largest economy.)

Among the issues requiring resolution are high Asian import tariffs and quotas and China’s seemingly arbitrary use of medfly concerns to embargo California citrus. This highlights the importance of detection and eradication of exotic pests to insure reliability of California export markets.

Considerable discussion focused on the implications of the Asian financial turmoil for California agriculture. Slower income growth and a strong dollar relative to Asian currencies translate into weaker demand for California exports. However, as of December 11, for cotton and citrus, the impact was negligible.

LATIN AMERICA. Mexico and the countries of Central and South America are diverse in cultural orientation, competitive position and economic relationship. Conspicuously, the U.S. lags behind Europe and others in trade agreements with the region. A number of these countries have been aggressively developing foreign markets and have been creating trade alliances—most notably MERCOSUR.

Sanitary and phytosanitary barriers are a sensitive issue for the two-way fresh fruit and vegetable trade with Chile and other countries of Latin America. Systems inspection agreements, such as the Oriental Fruit Moth Agreement between Mexico and the U.S. covering export of California fruit to Mexico, could serve as important models for future SPS agreements. A systems inspection approach, however, requires continuous attention to details.

US, CANADA AND EUROPE. The U.S. domestic market is the largest market for California farm production, Canada is our number two export market and the European Union remains among the top six export destinations. The domestic market is complex and changing. Consumers remain interested in value-added, time saving products and are increasingly focused on food safety. The source of the food matters less than its perceived safety. Panelists recommended seeking market niches for specific products rather than attempting to market globally.

Keys to market growth will be found through (1) market research, (2) strategic alliances with competitors in other countries and (3) consumer education. This panel also expressed frustration with market access and with export subsidies by foreign competitors.

In wrapping up the conference, AIC Director Daniel Sumner repeated the theme heard from those present—the future will be shaped by market access—and that access will be affected by sanitary and phytosanitary standards. He urged attention to trade negotiations as the one viable way to pursue market opening.

AIC TO SURVEY INTERNET USE AND INTEREST

The internet is here to stay. We at AIC, like others involved in California agriculture, are considering how to make more effective use of our communication opportunities through the net. To tailor our use of technology to the needs of those we serve, AIC needs to know more about the technology, experience and expectations of our clients. In the coming weeks you will receive a short questionnaire from AIC asking what information technology you use, what you use it for, and what services you would want an organization like AIC to provide through the internet. We will use the results of the survey in planning improvements in our internet service. This information also will be of interest to others and will summarize the survey results in an upcoming AIC Issues Brief.Thank you in advance for your participation in the survey.

AIC DIRECTOR HEADS TRADE RESEARCH GROUP

AIC Director Daniel A. Sumner was elected Chairman of the Board of Directors of the International Agricultural Trade Research Consortium (IATRC) at its annual meeting in December.

The IATRC is a diverse group of academic, government and industry economists who conduct research, policy analysis and public outreach related to trade in agriculture. Formed in 1981, IATRC now has a diverse and distinguished membership from more than a dozen countries.

Sumner was re-elected to serve a two-year term on the Board and will lead the group through its meetings on Food Security (June 1998) and Regional Trade Agreements (December 1998). He will also provide guidance for the June 1999 meeting on the role of China in the agricultural trading system.